Reduction of an employee’s pay scale without hearing violates principles of natural justice.

The respondents were initially engaged as Lower Division Clerks on consolidated remuneration of ₹12,000 per month.

By order dated 21 May 2013, they were appointed against regular posts and granted regular pay scales.

During an audit conducted on 2 February 2018, the appointments were found to be irregular.

Relying on the audit objection, the appellant-Society withdrew the regular pay scales and directed the respondents to continue on consolidated remuneration of ₹12,000 per month by order dated 5 February 2018.

No notice or opportunity of hearing was afforded before the reduction.

The respondents filed writ petitions, which were allowed by the learned Single Judge on the ground that reduction of pay scale involved civil consequences and violated natural justice.

The Society challenged that order through the present connected special appeals.

Whether the appellant-Society could reduce the respondents’ regular pay scales and restore them to consolidated remuneration without issuing notice or granting an opportunity of hearing.

Whether the alleged irregularity or fraud in the respondents’ appointments, as detected during audit, dispensed with the requirement of complying with the principles of natural justice.

Any reduction or re-fixation of an employee’s pay that causes recurring financial loss constitutes a civil consequence and cannot ordinarily be effected without prior notice and an opportunity of hearing.

The Court relied principally on Mukund K. Pai & Ors. v. Punjab National Bank & Ors., 2025 SCC OnLine SC 2345, which held that re-fixation of pay resulting in reduction of salary requires observance of natural justice.

It also applied the principle in Bhagwan Shukla v. Union of India & Ors., (1994) 6 SCC 154, that reduction of an employee’s basic pay without notice or hearing is a flagrant violation of natural justice, notwithstanding the financial or administrative justification asserted by the employer.

The Division Bench held that the decisive fact was not whether the appointments were irregular, but that the respondents’ pay had been reduced without affording them an opportunity to contest the audit findings or the proposed action.

Reduction from the regular pay scale to fixed remuneration caused direct and recurring financial prejudice and therefore attracted the audi alteram partem rule.

The Society’s contention that it was merely restoring the pre-existing position, or that the appointments resulted from the former Manager’s alleged fraud, did not eliminate the respondents’ right to be heard before an adverse pay-reduction order was passed.

Since the order dated 5 February 2018 was made behind the respondents’ backs, the learned Single Judge was justified in quashing it.

It held that reduction of the respondents’ pay scales without prior notice and hearing violated the principles of natural justice, even where the reduction was based on alleged irregular appointments and audit objections.

Finding no merit in the connected special appeals, the Court dismissed all of them and disposed of any pending interlocutory applications.